Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 1, 2014

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 0-20052

 

 

STEIN MART, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Florida   64-0466198

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification Number)

1200 Riverplace Blvd., Jacksonville, Florida   32207
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (904) 346-1500

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the Registrant’s common stock as of November 21, 2014 was 44,940,342.

 

 

 


Table of Contents

STEIN MART, INC.

TABLE OF CONTENTS

 

         PAGE  

PART I

 

FINANCIAL INFORMATION

  

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited):

  
 

Condensed Consolidated Balance Sheets at November 1, 2014, February 1, 2014 and November 2, 2013

     3   
 

Condensed Consolidated Statements of Operations for the 13 and 39 Weeks Ended November  1, 2014 and November 2, 2013

     4   
 

Condensed Consolidated Statements of Comprehensive (Loss) Income for the 13 and 39 Weeks Ended November  1, 2014 and November 2, 2013

     5   
 

Condensed Consolidated Statements of Cash Flows for the 39 Weeks Ended November 1, 2014 and November  2, 2013

     6   
 

Notes to Condensed Consolidated Financial Statements

     7   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     10   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     13   

Item 4.

 

Controls and Procedures

     13   

PART II

 

OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     14   

Item 1A.

 

Risk Factors

     14   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     14   

Item 3.

 

Defaults Upon Senior Securities

     14   

Item 4.

 

Mine Safety Disclosures

     14   

Item 5.

 

Other Information

     14   

Item 6.

 

Exhibits

     14   

SIGNATURES

     15   

 

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Stein Mart, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except for share and per share data)

 

     November 1, 2014     February 1, 2014     November 2, 2013  

ASSETS

      

Current assets:

      

Cash and cash equivalents

   $ 64,882      $ 66,854      $ 59,517   

Inventories

     343,721        261,517        329,691   

Prepaid expenses and other current assets

     29,840        28,800        25,796   
  

 

 

   

 

 

   

 

 

 

Total current assets

     438,443        357,171        415,004   

Property and equipment, net of accumulated depreciation and amortization of $168,557, $152,280 and $148,358, respectively

     150,646        139,673        140,422   

Other assets

     31,005        27,414        26,930   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 620,094      $ 524,258      $ 582,356   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Current liabilities:

      

Accounts payable

   $ 214,635      $ 131,338      $ 199,135   

Accrued expenses and other current liabilities

     63,332        64,875        65,192   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     277,967        196,213        264,327   

Deferred rent

     32,063        26,626        23,694   

Other liabilities

     36,211        37,018        37,996   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     346,241        259,857        326,017   
  

 

 

   

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (See Note 6)

      

Shareholders’ equity:

      

Preferred stock - $.01 par value; 1,000,000 shares authorized; no shares issued or outstanding

      

Common stock - $.01 par value; 100,000,000 shares authorized; 44,945,280, 44,551,676 and 44,500,995 shares issued and outstanding, respectively

     449        446        445   

Additional paid-in capital

     32,532        28,745        26,078   

Retained earnings

     241,125        235,471        230,278   

Accumulated other comprehensive loss

     (253     (261     (462
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     273,853        264,401        256,339   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 620,094      $ 524,258      $ 582,356   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Stein Mart, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

     13 Weeks Ended     13 Weeks Ended     39 Weeks Ended      39 Weeks Ended  
     November 1, 2014     November 2, 2013     November 1, 2014      November 2, 2013  

Net sales

   $ 303,667      $ 290,453      $ 930,678       $ 902,786   

Cost of merchandise sold

     219,106        212,688        657,547         646,760   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     84,561        77,765        273,131         256,026   

Selling, general and administrative expenses

     86,277        77,873        248,957         225,909   
  

 

 

   

 

 

   

 

 

    

 

 

 

Operating (loss) income

     (1,716     (108     24,174         30,117   

Interest expense, net

     66        69        200         197   
  

 

 

   

 

 

   

 

 

    

 

 

 

(Loss) income before income taxes

     (1,782     (177     23,974         29,920   

Income tax (benefit) expense

     (571     (205     9,373         11,786   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net (loss) income

   $ (1,211   $ 28      $ 14,601       $ 18,134   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net (loss) income per share:

         

Basic

   $ (0.03   $ 0.00      $ 0.33       $ 0.41   
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted

   $ (0.03   $ 0.00      $ 0.32       $ 0.40   
  

 

 

   

 

 

   

 

 

    

 

 

 

Weighted-average shares outstanding:

         

Basic

     43,857        43,102        43,833         42,949   
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted

     43,857        43,924        44,664         43,631   
  

 

 

   

 

 

   

 

 

    

 

 

 

Dividends declared per common share

   $ 0.075      $ 0.05      $ 0.20       $ 0.10   
  

 

 

   

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Stein Mart, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(In thousands)

 

     13 Weeks Ended     13 Weeks Ended      39 Weeks Ended      39 Weeks Ended  
     November 1, 2014     November 2, 2013      November 1, 2014      November 2, 2013  

Net (loss) income

   $ (1,211   $ 28       $ 14,601       $ 18,134   

Other comprehensive income, net of tax:

          

Change in post-retirement benefit obligations:

          

Amounts reclassified from accumulated other comprehensive loss

     3        2         8         7   
  

 

 

   

 

 

    

 

 

    

 

 

 

Comprehensive (loss) income

   $ (1,208   $ 30       $ 14,609       $ 18,141   
  

 

 

   

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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Stein Mart, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

     39 Weeks Ended     39 Weeks Ended  
     November 1, 2014     November 2, 2013  

Cash flows from operating activities:

    

Net income

   $ 14,601      $ 18,134   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     21,709        20,834   

Share-based compensation

     5,492        5,248   

Store closing charges (benefits)

     1,163        (145

Impairment of property and other assets

     96        —     

Loss on disposals of property and equipment

     121        586   

Deferred income taxes

     1,399        6,740   

Tax benefit (deficiency) from equity issuances

     756        (68

Excess tax benefits from share-based compensation

     (879     (610

Changes in assets and liabilities:

    

Inventories

     (82,204     (86,346

Prepaid expenses and other current assets

     (4,278     (5,542

Other assets

     (3,591     (224

Accounts payable

     83,446        68,163   

Accrued expenses and other current liabilities

     (1,729     (691

Other liabilities

     6,477        (920
  

 

 

   

 

 

 

Net cash provided by operating activities

     42,579        25,159   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Acquisition of property and equipment

     (34,043     (30,272
  

 

 

   

 

 

 

Net cash used in investing activities

     (34,043     (30,272
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Cash dividends paid

     (8,929     (4,430

Capital lease payments

     —          (2,197

Excess tax benefits from share-based compensation

     879        610   

Proceeds from exercise of stock options and other

     427        3,633   

Repurchase of common stock

     (2,885     (219
  

 

 

   

 

 

 

Net cash used in financing activities

     (10,508     (2,603
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,972     (7,716

Cash and cash equivalents at beginning of year

     66,854        67,233   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 64,882      $ 59,517   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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STEIN MART, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in tables in thousands, except per share amounts)

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal and recurring adjustments) considered necessary for a fair statement have been included. Due to the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our annual report on Form 10-K for the year ended February 1, 2014.

As used herein, the terms “we,” “our,” “us,” “Stein Mart” and the “Company” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Recent Accounting Pronouncements

In 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under ASU No. 2013-11, an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this guidance in the first quarter of 2014. The application of this guidance did not have an impact on our consolidated financial statements or disclosures.

In 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which raises the threshold for disposals to qualify as discontinued operations. ASU No. 2014-08 defines a discontinued operation as (1) a component of an entity or group of components that has been disposed of or classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results; or (2) an acquired business that is classified as held for sale on the acquisition date. Under ASU No. 2014-08, additional disclosures are required regarding discontinued operations, as well as material disposals that do not meet the definition of discontinued operations. The application of this guidance is prospective from the date of adoption and applies only to disposals (or new classifications to held for sale) that have not been reported as discontinued operations in previously issued financial statements. We adopted ASU No. 2014-08 in the first quarter of 2014. The application of this guidance did not have an impact on our consolidated financial statements or disclosures.

In 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

Reclassifications

We have made certain reclassifications in the Condensed Consolidated Balance Sheets related to the difference between the amount charged to rent expense and the rent paid as well as construction allowances and other lease incentives which were presented in Other liabilities and have been reclassified to Deferred rent.

2. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We have money market fund investments classified as cash equivalents which are Level 1 assets because fair value is based on readily available market prices. The fair value of these assets was $50.2 million at November 1, 2014, $56.2 million at February 1, 2014, and $45.2 million at November 2, 2013.

3. Revolving Credit Agreement

We have an amended and restated revolving credit agreement (the “Credit Agreement”) dated October 28, 2011. The Credit Agreement provides for a $100 million senior secured revolving credit facility which can be increased to $150 million. The Credit Agreement matures on February 28, 2017. Borrowings under the Credit Agreement are based on and secured by eligible credit card receivables and inventory.

 

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The amount available for direct borrowing was $93.4 million at November 1, 2014, and is based on 90% of eligible credit card receivables and inventories less reserves, as defined in the Credit Agreement. The amount available for borrowing represents the capped borrowing base of $100 million reduced by outstanding letters of credit of $6.6 million. The Credit Agreement contains customary affirmative and negative covenants, including limitations on granting of liens, certain investments, additional indebtedness, prepayments on indebtedness and disposition of inventory. The Credit Agreement permits the payment of dividends if we are not in default and payment conditions are satisfied. We had no direct borrowings under the Credit Agreement at November 1, 2014, February 1, 2014 and November 2, 2013.

4. Shareholders’ Equity

Stock Repurchase Plan

During the 39 weeks ended November 1, 2014, we repurchased 228,553 shares of our common stock at a total cost of $2.9 million. During the 39 weeks ended November 2, 2013, we repurchased 18,927 shares of our common stock at a total cost of $0.2 million. Stock repurchases were for taxes due on the vesting of employee stock awards and, during the 39 weeks ended November 1, 2014, included 103,352 shares purchased on the open market under our previously authorized stock repurchase plan. As of November 1, 2014, there are 574,638 shares which can be repurchased pursuant to the Board of Directors’ current authorization.

5. Earnings Per Share

We calculate earnings per common share (“EPS”) using the two-class method. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of EPS. Our restricted stock awards in 2013 and prior are considered “participating securities” because they contain non-forfeitable rights to dividends.

The following table presents the calculation of basic and diluted EPS (shares in thousands):

 

     13 Weeks Ended     13 Weeks Ended      39 Weeks Ended      39 Weeks Ended  
     November 1, 2014     November 2, 2013      November 1, 2014      November 2, 2013  

Basic (Loss) Earnings Per Common Share:

          

Net (loss) income

   $ (1,211   $ 28       $ 14,601       $ 18,134   

Income allocated to participating securities

     —          —           268         479   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net (loss) income available to common shareholders

   $ (1,211   $ 28       $ 14,333       $ 17,655   
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic weighted-average shares outstanding

     43,857        43,102         43,833         42,949   
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic (loss) earnings per share

   $ (0.03   $ 0.00       $ 0.33       $ 0.41   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted (Loss) Earnings Per Common Share:

          

Net (loss) income

   $ (1,211   $ 28       $ 14,601       $ 18,134   

Income allocated to participating securities

     —          1         266         474   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net (loss) income available to common shareholders

   $ (1,211   $ 27       $ 14,335       $ 17,660   
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic weighted-average shares outstanding

     43,857        43,102         43,833         42,949   

Incremental shares from share-based compensation plans

     —          822         831         682   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted weighted-average shares outstanding

     43,857        43,924         44,664         43,631   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted (loss) earnings per share

   $ (0.03   $ 0.00       $ 0.32       $ 0.40   
  

 

 

   

 

 

    

 

 

    

 

 

 

Due to the Company’s net loss position for the third quarter of 2014, 0.8 million weighted average unvested restricted shares (participating securities) and 1.0 million weighted average common stock equivalents (non-participating securities) were not considered in the calculation of net loss available to common shareholders used for both basic and diluted EPS for the quarter. In addition, options to acquire shares totaling approximately 0.4 million and 11 thousand shares of common stock that were outstanding during the third quarters of 2014 and 2013, respectively, were not included in the computation of diluted earnings per common share. Options excluded were those that had exercise prices greater than the average market price of the common shares such that inclusion would have been anti-dilutive. For the first 9 months of 2014 and 2013, options to acquire shares of approximately 0.3 million shares of common stock, were not included in the computation of diluted earnings per share for the aforementioned reasons.

 

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6. Commitments and Contingencies

On July 24, 2013, the Securities and Exchange Commission (the “SEC”) informed us that it was conducting an investigation of the Company and made a request for voluntary production of documents and information. The request is focused on our 2013 restatement of prior financial statements and our change in auditors. We are cooperating fully with the SEC in this matter. We are unable to predict what action, if any, might be taken in the future by the SEC as a result of the matters that are the subject of the investigation or what impact the cost of responding to the investigation might have on our financial condition or results of operations.

In addition, we are involved in various routine legal proceedings incidental to the conduct of our business. Based upon the advice of outside legal counsel, we do not believe that any of these legal proceedings will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

 

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STEIN MART, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used herein, the terms “we,” “our,” “us,” “Stein Mart” and the “Company” refer to Stein Mart, Inc. and its wholly-owned subsidiaries.

Forward-Looking Statements

This report contains forward-looking statements which are subject to certain risks, uncertainties or assumptions and may be affected by certain factors, including, but not limited to the matters discussed in “Item 1A. Risk Factors” of our Form 10-K for the fiscal year ended February 1, 2014. Wherever used, the words “plan,” “expect,” “anticipate,” “believe,” “estimate” and similar expressions identify forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on beliefs and assumptions of our management and on information currently available to such management. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise our forward-looking statements in light of new information or future events. Undue reliance should not be placed on such forward-looking statements, which are based on current expectations. Forward-looking statements are no guarantees of performance.

Overview

Stein Mart is a national retailer offering the fashion merchandise, service and presentation of a better department or specialty store at prices competitive with off-price retail chains. Our focused assortment of merchandise features current-season moderate to better fashion apparel for women and men, as well as accessories, shoes and home fashions.

Financial Overview for the 13 and 39 weeks ended November 1, 2014

 

    Net sales were $303.7 million for the 13 weeks ended November 1, 2014, an increase from $290.5 million for the 13 weeks ended November 2, 2013, and $930.7 million for the 39 weeks ended November 1, 2014, an increase from $902.8 million for the 39 weeks ended November 2, 2013.

 

    Comparable store sales for the 13 weeks ended November 1, 2014 increased 3.1 percent compared to the 13 weeks ended November 2, 2013, and for the 39 weeks ended November 1, 2014 increased 2.3 percent compared to the 39 weeks ended November 2, 2013.

 

    The gross profit rates increased approximately 1% for the 13 and 39 weeks ended November 1, 2014 as compared to the corresponding period in 2013. The increase is primarily due to the impact of the fourth quarter fiscal 2013 change in accounting estimate for buying and distribution costs allocated to inventories.

 

    Selling, general and administrative (SG&A) expenses were $86.3 million for the 13 weeks ended November 1, 2014, an increase from $77.9 million for the 13 weeks ended November 2, 2013, and $249.0 million for the 39 weeks ended November 1, 2014, an increase from $225.9 million for the 39 weeks ended November 2, 2013. The increase is primarily due the impact of the fourth quarter fiscal 2013 change in accounting estimate for buying and distribution costs allocated to inventories as well as higher professional fees related to the SEC investigation.

 

    Net loss was $1.2 million or $0.03 loss per diluted share for the 13 weeks ended November 1, 2014, compared to net income of $28 thousand or $0.00 per diluted share for the 13 weeks ended November 2, 2013.

 

    Net income was $14.6 million or $0.32 per diluted share for the 39 weeks ended November 1, 2014 compared to net income of $18.1 million or $0.40 per diluted share for the 39 weeks ended November 2, 2013.

 

    Cash and cash equivalents as of November 1, 2014 was $64.9 million compared to $66.9 million as of February 1, 2014 and $59.5 million as of November 2, 2013.

 

    We had no direct borrowings on our revolving credit agreement as of November 1, 2014, February 1, 2014 and November 2, 2013.

 

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Stores

The following table summarizes store counts for the 13 and 39 weeks ended November 1, 2014 and November 2, 2013.

 

     13 Weeks Ended     13 Weeks Ended     39 Weeks Ended     39 Weeks Ended  
     November 1, 2014     November 2, 2013     November 1, 2014     November 2, 2013  

Stores at beginning of period

     265        262        264        263   

Stores opened during the period

     4        4        7        4   

Stores closed during the period

     (1     (2     (3     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

Stores at the end of period

     268        264        268        264   
  

 

 

   

 

 

   

 

 

   

 

 

 

Results of Operations

The following table sets forth the Condensed Consolidated Statements of Operations expressed as a percentage of our net sales:

 

     13 Weeks Ended     13 Weeks Ended     39 Weeks Ended     39 Weeks Ended  
     November 1, 2014     November 2, 2013     November 1, 2014     November 2, 2013  

Net sales

     100.0     100.0     100.0     100.0

Cost of merchandise sold

     72.2     73.2     70.7     71.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     27.8     26.8     29.3     28.4

Selling, general and administrative expenses

     28.4     26.9     26.7     25.1
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from operations

     (0.6 )%      (0.1 )%      2.6     3.3

Interest expense, net

     0.0     0.0     0.0     0.0
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (0.6 )%      (0.1 )%      2.6     3.3

Income tax (benefit) expense

     (0.2 )%      (0.1 )%      1.0     1.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (0.4 )%      0.0     1.6     2.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Thirteen and Thirty-Nine Weeks Ended November 1, 2014, Compared to the Thirteen and Thirty-Nine Weeks Ended November 2, 2013 (dollar amounts in thousands):

Net Sales

 

     13 Weeks Ended      13 Weeks Ended            39 Weeks Ended      39 Weeks Ended         
     November 1, 2014      November 2, 2013      Increase     November 1, 2014      November 2, 2013      Increase  

Net sales

   $ 303,667       $ 290,453       $ 13,214      $ 930,678       $ 902,786       $ 27,892   

Sales percent increase:

                

Total net sales

           4.5           3.1

Comparable store sales

           3.1           2.3

The increase in comparable store sales for the 13 and 39 weeks ended November 1, 2014 was driven by increases in average unit retail prices and average units per transaction, partially offset by a decrease in the number of transactions. Comparable store sales reflects stores open throughout the period and prior fiscal year and includes internet sales. Internet sales contributed approximately 0.8% to the comparable store sales increase for both the 13 and 39 weeks ended November 1, 2014. Comparable store sales does not include leased department commissions.

Gross Profit

 

     13 Weeks Ended
November 1, 2014
    13 Weeks Ended
November 2, 2013
    Increase     39 Weeks Ended
November 1, 2014
    39 Weeks Ended
November 2, 2013
    Increase  

Gross profit

   $ 84,561      $ 77,765      $ 6,796      $ 273,131      $ 256,026      $ 17,105   

Percentage of net sales

     27.8     26.8     1.0     29.3     28.4     0.9

For the 13 and 39 weeks ended November 1, 2014, the gross profit rates increased primarily due to an approximate $2.4 million and $9.6 million impact of the fourth quarter fiscal 2013 change in accounting estimate for buying and distribution costs allocated to inventories, respectively, as well as higher markup. These were somewhat offset by higher markdowns and higher occupancy costs, principally due to new stores. The higher occupancy costs include preopening costs.

 

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Selling, General and Administrative Expenses (“SG&A”)

 

     13 Weeks Ended     13 Weeks Ended           39 Weeks Ended     39 Weeks Ended        
     November 1, 2014     November 2, 2013     Increase     November 1, 2014     November 2, 2013     Increase  

Selling, general and administrative expenses

   $ 86,277      $ 77,873      $ 8,404      $ 248,957      $ 225,909      $ 23,048   

Percentage of net sales

     28.4     26.9     1.5     26.7     25.1     1.6

For the 13 weeks ended November 1, 2014, SG&A expenses increased primarily due to an approximate $3.8 million impact of the fourth quarter fiscal 2013 change in accounting estimate for buying and distribution costs allocated to inventories, $1.2 million in increased professional fees related to the SEC investigation, $1.0 million higher store closing charges and higher store payroll and selling expenses. These increases were partially offset by $2.0 million lower earnings-based incentive compensation expense and higher credit card program income. Store selling expenses are higher due to planned payroll increases and new stores.

For the 39 weeks ended November 1, 2014, SG&A expenses increased primarily due to an approximate $11.0 million impact of the fourth quarter fiscal 2013 change in accounting estimate for buying and distribution costs allocated to inventories, $3.2 million in higher healthcare claims costs, $2.1 million in higher advertising expenses, higher store selling expenses and $2.4 million higher professional fees related to the SEC investigation. These increases were somewhat offset by $4.0 million lower earnings-based incentive compensation expense and higher credit card program income. Store selling expenses are higher due to planned payroll increases and new stores.

Income Taxes

 

     13 Weeks Ended     13 Weeks Ended     (Decrease)/     39 Weeks Ended     39 Weeks Ended        
     November 1, 2014     November 2, 2013     Increase     November 1, 2014     November 2, 2013     Decrease  

Income tax (benefit) expense

   $ (571   $ (205   $ (366   $ 9,373      $ 11,786      $ (2,413

Effective tax rate

     (32.0 )%      (115.8 )%      83.8     39.1     39.4     (0.3 )% 

Liquidity and Capital Resources

Our primary source of liquidity is the sale of merchandise inventories. Capital requirements and working capital needs are funded through a combination of internally generated funds, available cash, credit terms from vendors and our amended and restated revolving credit agreement (“Credit Agreement”). Working capital is used to support store inventories and capital investments for system improvements, new store openings and to maintain existing stores. Historically, our working capital needs are lowest after our heavy spring selling in March and April and holiday selling in late December and early January. They are highest as we begin paying for our heavy spring, fall, and holiday receipts in late February, October and at the end of November, respectively. As of November 1, 2014, we had cash and cash equivalents of $64.9 million and no direct borrowings under our Credit Agreement.

Net cash provided by operating activities was $42.6 million for the 39 weeks ended November 1, 2014 compared to net cash provided by operating activities of $25.2 million for the 39 weeks ended November 2, 2013. Cash provided by operating activities increased primarily due to $22.7 million less cash used to reduce accounts payable and other liabilities, offset by $6.3 million less cash provided by net income and other non-cash charges.

Net cash used in investing activities is for capital expenditures and was $34.0 million for the 39 weeks ended November 1, 2014 compared to $30.3 million for the 39 weeks ended November 2, 2013. Capital expenditures were higher for the 39 weeks ended November 1, 2014 primarily due to more new and relocated stores.

Net cash used in financing activities was $10.5 million for the 39 weeks ended November 1, 2014 compared to cash used in financing activities of $2.6 million for the 39 weeks ended November 2, 2013. During the 39 weeks ended November 1, 2014, we paid cash dividends of $8.9 million and repurchased shares of common stock for $2.9 million. During the 39 weeks ended November 2, 2013, we had cash dividends paid of $4.4 million, payments on capital leases of $2.2 million and receipts from stock option exercises of $3.6 million.

 

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Critical Accounting Policies and Estimates

We discuss our critical accounting policies and estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended February 1, 2014. We have made no significant change in our critical accounting policies since February 1, 2014.

Recent Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 to the unaudited Condensed Consolidated Financial Statements.

Seasonality and Inflation

Our business is seasonal. Sales and profitability are historically higher in the first and fourth quarters of the fiscal year, which include the spring and holiday seasons. Therefore, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year.

Although we expect that our operations will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to certain market risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our annual report on Form 10-K for the year ended February 1, 2014. There were no material changes to our market risk during the quarter ended November 1, 2014.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report due to the material weakness identified in our internal control over financial reporting described below.

As previously disclosed in our 2013 10-K, we identified a material weakness in the design and effectiveness in the operation of our controls that are intended to ensure that access to our retail management system and the related inventory data files was adequately restricted. As a result of this material weakness, a reasonable possibility exists that a material misstatement in inventory in our annual or interim financial statements could occur and not be prevented or detected on a timely basis.

We are taking steps to remediate this material weakness, including implementing new policies and procedures to enhance oversight of our system access controls, implementation of an access controls governance software program, improved periodic access reviews, and timely communication of employee changes.

We believe the remediation measures will strengthen our internal control over financial reporting and remediate the material weaknesses identified. However, as we are still assessing the design and operating effectiveness of these measures, the identified material weaknesses have not been fully remediated as of November 1, 2014. We will continue to monitor the effectiveness of these remediation measures and will make any changes and take such other actions that we deem appropriate.

We assessed the material weakness’ impact to the condensed consolidated financial statements to ensure they were prepared in accordance with GAAP and present fairly the consolidated financial position, results of operation and cash flows as of and for the 39 weeks ended November 1, 2014. Based on these additional procedures and assessment, we concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material aspects, our consolidated financial position, results of operations and cash flows for the periods presented.

Changes in Internal Control Over Financial Reporting

Except as described above in regards to the remediation process, there were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On July 24, 2013, the SEC informed us that it was conducting an investigation of the Company and made a request for voluntary production of documents and information. The request focused on our 2013 restatement of prior consolidated financial statements and our change in auditors. We are cooperating fully with the SEC in this matter. We are unable to predict what action, if any, might be taken in the future by the SEC as a result of the matters that are the subject of the investigation or what impact the cost of responding to the investigation might have on our consolidated financial condition or results of operations.

In addition, we are involved in various routine legal proceedings incidental to the conduct of our business. Based upon the advice of outside legal counsel, we do not believe that any of these legal proceedings will have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

There have been no significant changes in our risk factors from those described in our annual report on Form 10-K for the year ended February 1, 2014.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding repurchases of our common stock during the quarter ended November 1, 2014:

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

   Total
number
of shares
purchased
     Average
price
paid per
share
     Total number of
shares purchased
as part of publicly
announced plans
or programs (1)
     Maximum number
of shares that may
yet be purchased
under the plans or
programs (1)
 

August 3, 2014 - August 30, 2014

     1,423       $ 12.94         1,423         579,274   

August 31, 2014 - October 4, 2014

     1,411       $ 11.87         1,411         577,863   

October 5, 2014 - November 1, 2014

     3,225       $ 13.29         3,225         574,638   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     6,059       $ 12.88         6,059         574,638   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Our Open Market Repurchase Program is conducted pursuant to authorizations made from time to time by our Board of Directors. The shares reported in this table are covered by a June 14, 2011 Board authorization to repurchase 2.5 million shares of common stock which does not have an expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

 

31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a)
32.1    Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2    Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
101    Interactive data files from Stein Mart, Inc.’s Quarterly Report on Form 10-Q for the quarter ended November 1, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

    STEIN MART, INC.
Date: December 4, 2014     By:  

/s/ Jay Stein

      Jay Stein
      Chairman of the Board and Chief Executive Officer
     

/s/ Gregory W. Kleffner

      Gregory W. Kleffner
      Executive Vice President and Chief Financial Officer

 

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